Matt Smith: It is an awful term but horizontal fiscal equalisation is very important for South Aussies
CHANGES to the way GST should be carved up have long threatened to become a political pain for the Federal Government. So have they dodged a bullet, asks Matt Smith.
IT is hard to imagine a more awful term in Australian politics than “horizontal fiscal equalisation” (HFE) – the methodology used to distribute GST payments to state and territories.
Explaining what it means, it seems, is an exercise that requires a degree in economics.
The basic message from the Commonwealth Grants Commission, which determines the carve up of GST revenue to states and territories, is that not all states and territories are built the same.
Some have greater revenue raising capacities than others due to factors ranging from population growth to industry; therefore the big bucket of money cannot just be distributed on a per capita basis.
This financial year West Australia will receive just 47 cents for every GST dollar received by the Commonwealth.
South Australia, on the other hand, will receive $1.47, while the Northern Territory will get $4.25.
It is no wonder WA has been jumping up and down; after years where the mining boom provided rivers of gold, the slow down has seen the state fall on harder times.
Meantime, states like SA and Tasmania have taken comfort in the fact that the HFE system ensured they were not left holding the can for increased services costs when they are failing to generate the same revenue.
News, in April last year, that the Federal Government would get the Productivity Commission to look into GST distribution has always been seen as a political opportunity by enemies of the government in smaller states – those reliant on a great share of GST payments.
They were right – the commission model would have seen SA losing about $500 million a year, according to Treasurer Rob Lucas.
But, the Federal Government rejected that. A new system of top up payments will ensure no state is left worse off, it says.
State Opposition treasury spokesman Stephen Mullighan has already declared the new payments a “pittance”.
The key for SA will be to lock in long term funding that ensures it is not disadvantaged a few years down the track and for this State Government to keep its promise of economic growth, thus ensuring a bigger slice of the revenue pie.